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Is The Next Bubble Unavoidable?
- Australia
- Australian Dollar
- Brazil
- Canadian Dollar
- Central Banks
- China
- Fail
- Federal Reserve
- Fund Flows
- Global Economy
- Green Shoots
- India
- Insurance Companies
- John Maynard Keynes
- Lehman
- Lehman Brothers
- Maynard Keynes
- Monetary Policy
- New York Fed
- Nouriel
- Nouriel Roubini
- Private Equity
- Quantitative Easing
- Real estate
- Recession
- recovery
- Too Big To Fail
- Unemployment
- Wall Street Journal
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Before I discuss my latest topic, a follow-up note on my last comment on private equity.
I spoke with a senior private equity pension fund manager this morning
(great guy who really knows his stuff) and he told me the secondary
funds are not doing as well as you'd think.
I was surprised
given that many endowments, pension funds and insurance companies are
looking to unload some private equity stakes. He told me that the
"bid-ask spread in the secondary market is too high". He was waiting
for some correction in the markets to see if they come in.
He
also told me that the days of loading up debt to the max are over.
"More and more private equity deals are being done with a lot less
leverage." He added "there is no more rising tide" to reward you for
taking on leverage.
According to him, many GPs are scared to
death that LPs will not be able to meet their capital calls. I told him
that private equity is better than real estate, but it will take some
time before it recovers.
One thing that scares him (and me) is
the influx of sovereign wealth money from China and other places coming
into private equity. If they start bidding deals up then valuations will
get all out of whack.
That gets me into my latest topic. On Monday, the first rate hike marked a shift, igniting markets:
Australia
broke ranks with other industrial economies Tuesday in a policy
reversal that sets the stage for other central banks to follow suit, as
they, too, become more concerned with preventing an outbreak of
inflation than propelling economies out of recession.
The
Reserve Bank of Australia boosted its key lending rate by a quarter of
a percentage point to 3.25 per cent, and Governor Glenn Stevens
signalled that further hikes could follow.
The move reverses a
series of sharp cuts made in the wake of the collapse of Lehman
Brothers last September and the ensuing credit crunch that slammed
strong and weak economies alike and brought international trade,
Australia's lifeblood, to a near standstill.
The
central bank's unexpected move was widely viewed in the markets as a
confirmation that the global economy is on the mend. Investors rushed
into the Australian dollar and other commodity-based currencies,
including the loonie.
Gold climbed to a record $1,043.20 (U.S.)
an ounce and the U.S. dollar plunged, as less-fearful investors rowed
away from what they had considered a safe harbour in uncertain waters.
The
key question now is whether other central bankers looking at
stabilizing employment and brightening growth prospects will similarly
move to reverse historically loose monetary policies.
Rumors
are that Norway's central bank will also raise rates. But there is no
chance that the Fed or the Bank of Canada will raise rates anytime
soon. The Canadian dollar surged following the Australian rate hike and Bank fo Canada has already repeatedly expressed its concern over the rising loonie.
As
for the Fed, they're in no hurry to lift the fed-funds rate. With the
US dollar depreciating and interest rates next to zero, financial
conditions remain very accomodative. In my opinion, the Fed will wait
to see unemployment falling a full percentage point before considering
raising the key rate. And that won't happen until mid 2010 at the
earliest.
Of course, growth could surprise to the upside,
especially in a V-shaped recovery, and that will force central banks
around the world to carefully coordinate the gradual withdrawal of all
that stimulus.
In the meantime, stock markets will continue to
grind higher. I have seen this all before. Stocks typically surge at
the initial rate hikes as they see this as confirmation of global
economic recovery. Will it go parabolic from here? Who knows?
Reporting for the Business Insider, John Carney writes Is The Next Bubble Unavoidable?:
The
Federal Reserve is now faced with a challenge that is akin to threading
a needle by throwing a spool of thread across a football field.
It
is attempting to keep loose money and quantitative easing policies in
place long enough not to stymie the nascent recovery while pulling them
back in time to avoid massive inflation. It's a Hail Mary pass with an
impossibly small target while facing a blitz.
In today's Wall Street Journal, Nouriel Roubini and Ian Bremmer lay out a series of policy prescriptions
for how they think the Fed might be able to avoid creating another
dangerous asset bubble without triggering a double-dip recession. They
are very clear that this is an enormously difficult task--but even
their assessment might be too optimistic.
Here's the problem.
They agree that the operations of the Federal Reserve need to be
subject to political review because it is clear that the New York Fed
has been captured by Wall Street. The Fed's worries about its
independence being compromised make no sense when it seems that its
independence is already compromised to the our powerful financial firms.
But
Congressional oversight is likely to result in pressure to keep
monetary policy too loose for too long. Pulling back on easy money when
the financial system recovers but the real economy is still shaky, will
elicit howls of protests from politicians whose constituents are still
out of work, loosing their homes and seeing their credit lines closed.
There will be intense political pressure to repeat the "fateful
mistake" of the last recession, keeping monetary policy too easy for
too long.
Roubini and Bremmer's way out of this trap is to
recommend better supervision of banks, including the creating of a new
insolvency regime for the most important financial institutions and
better capital requirements. This too is harder than it looks.
Politicians, especially in Europe, are more attracted to regulating
banks through regulating pay than the complex and costly job of
reforming capital requirements. And policies that regulate 'too big to
fail' institutions run the risk of creating the impression of a
government guarantee.
Is there are way out? Unfortunately, the
way out may be the way back. The government, including the Fed, need to
restore the credibility of market processes by letting a too big to
fail institution go insolvent. In short, we need another Lehman. And a
policy that depends on failure to succeed is certainly not a happy one.
I quote the following from Ian Bremmer's and Nouriel Roubini's article in the WSJ, How the Fed Can Avoid the Next Bubble:
As
for the exit from monetary easing, the Fed must learn from the fateful
mistake it made after the 2001 recession. Then, the central bank cut
the federal-funds rate too much and kept it too low for too long. It
also moved far too slowly when the normalization occurred—in small
increments of 0.25% from summer 2004 until the summer of 2006, when it
peaked at 5.25%. Normalization took two full years. It was in that
period of slow normalization that the housing, mortgage and credit
bubbles spiraled out of control. The lesson learned: When you
normalize, move rapidly, or prepare for another dangerous bubble.
Of
course, this is easier said than done. From 2002 to 2006, the Fed moved
slowly because the recovery appeared anemic and because of significant
deflationary pressures. This time around, the recession is more
severe—unemployment is at 9.8% and is expected to peak above 10%, and
we are experiencing actual deflation. Therefore, the incentive not to
exit too soon will be greater and the risk of creating another bubble
is greater. Indeed, the sharp increase in the stock market and
commodities, and narrowing of credit spreads since March, are partly
due to a wall of global liquidity chasing assets and already causing
asset inflation.
If the conflict between economic growth and
financial stability requires that monetary policy remain loose, then it
is critical that the supervisors and regulators of the banking sector
move aggressively to prevent another bubble from emerging. Thus they
should quickly adopt the regulatory reforms agreed to by the
G-20—including a new insolvency regime for financial institutions
deemed "too big to fail," a serious approach to limiting "systemic
risk," and appropriate rules governing incentives and compensation for
bankers and traders.
Good luck. I see more bubble trouble on the way. Risk assets are being bid up all over the world as investors look for higher yields. I already spoke about overheating in Brazil but another stock market bubble is happening in India (hat tip Fred):
India’s
stock market recovery over the last six months is a bit too remarkable
for comfort. From its March 9, 2009 level of 8,160, the Sensex at
closing soared and nearly doubled to touch 16,184 on September 9, 2009.
This is still (thankfully) well below the 20,870 peak the index closed
at on September 1 2008, but is high enough to cheer the traders and
rapid enough to encourage a speculative rush.
There are two noteworthy features of the close to one hundred per cent
increase the index has registered in recent months. First, it occurs
when the aftermath of the global crisis is still with us and the search
for “green shoots and leaves” of recovery in the real economy is still
on. Real fundamentals do not seem to warrant this remarkable recovery.
Second, the speed with which this 100-percent rise has been delivered
is dramatic even when compared with the boom years that preceded the
2008-09 crisis.
The last time the Sensex moved between exactly similar
positions it took a year and ten months to rise from the 8,000-plus
level in early 2005 to the 16,000-plus level in late 2007. This time
around it has traversed the same distance in just six months.
Forget
fundamentals. Hedge fund flows, investment banking flows, sovereign
wealth fund flows, pension flows, and retail speculation will drive equities and other risk assets much
higher. How long can it last? Remember the famous quote from John
Maynard Keynes: "The market can stay irrational longer than you can
stay solvent."
»
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So the bubble reflates even higher as the U.S. $ gets destroyed? There's already an incredible staight up bubble in hi beta stcoks across the board here. Every bubble the last decade was followed by even lower stock market levels from crashes. What are the pensions longterm thinking of the repercussions after creating the next bubble? You state:
"Inflation is also what pension plans want because it helps them with assets and liabilities. "
Are not these plans supposed to be longterm thinkers? If that's the case, are they looking at the possiblity that another bubble will be followed by an even greater fall in equities, with rippening deflation of their gained assets in this forming bubble?
"Are not these plans supposed to be long-term thinkers? If that's the case, are they looking at the possiblity that another bubble will be followed by an even greater fall in equities, with rippening deflation of their gained assets in this forming bubble?"
Good question. Some are allocating aggressively to bonds which is probably why you see Treasuries being snapped up at every auction. Maybe they are worried about deflation down the road. But the majority of pension funds are long stocks and their fortunes are tied to the fate of the stock market. Also, if you believe that inflation is down the road, stocks offer some hedge to inflation. But if you believe th next bubble will end really bad, then you better be snapping up Treasuries like crazy at these yields.
the housing market crashed because home prices far out distanced household income. U - 6 unemployment is at 17%. Household income is down 21% YOY. Consumer credit has dropped 7 months in a row. Hardly an inflationary environment. There are still very strong deflationary headwinds.
Correct but monetary authorities are hoping that good old asset inflation will translate into economic inflation. We'll see if they succeed.
It seems clear at this point that the markets are already way into bubble territory. Where we go from here is anyone's guess. As far as an economic recovery is concerned, the American consumer shows no signs of reviving so any recovery will not be to the status quo ante. We're in completely unexplored territory here.
Excellent article. A market timing system (e.g., http://invetrics.com) is the only way to know when to get in and when to get out. While the markets move up, there is no reason to avoid being long. But when the tide turns, be ready to get out fast. It is all a trade. Buy and hold is dead now.
I heard a comment from a true old timer back in February. He said to never underestimate the heights that liquidity could send assets, particularly equities. Despite the horrendous fundamentals, then and now, it opened my mind, and gave additional courage to follow my gut and indicators in early March - much to my profit.
I am extremely wary of the equity markets, but there is also a possibility that liquidity (and stupidity) could take these things even higher. While I may not agree with the author on all of his posts, hearing opposing views and being open to examining the underlying assumptions can sometimes prevent us from following the seemingly rational train of thought right off a cliff.
Keep posting Leo. True discussions always need different points of view.
When are you going to post an article with a lot more discussion and detail as to why you think we will get a v-shaped recovery? I would find that very interesting, especially since I just don't see where a v-shaped recovery is going to come from.
Lux,
When I say V-shaped, I really mean "v"-shaped. Let me explain. I think growth will come in above expectations, mainly as a result of inventory repleneshing and a pick-up in investment spending, but there is too much slack in the economy to expect super Vigorous growth. I will come back to this topic in later posts.
Your comment doesn't make any sense. You say you're expecting higher than expected growth but only a v-shaped recovery instead of V-shaped. But the market is expecting a V-shaped recovery with EPS for the S&P 500 at $60/$75/$90 for 2009/10/11. That is 25% growth in 2010 and 23% in 2011, which would be the first time in history earnings grew over 20% in 2 consecutive years.
GS,
Markets are pricing in a strong earnings recovery and you know what, on a year-over-year basis they might be right. I doubt it will be that strong except there was a lot of cost cutting done in the last six months (look at Alcoa's last ER). I expect stronger than expected growth but nothing exceptional. Who knows? We might be surprised but I don't see it because there is too much slack in the American economy. But apart from expectations, we can't ignore liquidity flows, and they are coming in from everywhere. Risk assets are being bid up across the board as pensions, wealth funds, insurance funds, endowment funds, investment banks and hedge funds search for higher yields. We need new measures to track these liquidity flows.
What is liquidity and how do you measure it? In the last few years it essentially referred to access to borrowing. What appears to be excess liquidity can disappear in an instant when confidence and trust are lost. See the sudden seize up in the commercial paper market after Lehman last year which could have bankrupted companies like General Electric had the government not stepped in and backstopped the market.
Ask a veteran equity mutual fund manager about liquidity. When stock prices are going up the money generally pours in (though not now) and it's hard to stay fully invested. When stock prices go into a steep decline, redemptions pour in and managers have to sell stocks they'd prefer to be buying into illiquid markets, driving prices down further.
You seem to be advocating holding overpriced assets on the theory that liquidity will drive them even higher, but then you admit there's no reliable way to measure and track liquidity. Despite that I guess you think there's some way to sense when liquidity is about to disappear a little earlier than other market participants and get out of bubble-priced assets before they pop. Good luck with that.
As we saw with Lehman, one event can trigger a chain reaction that sucks the liquidity out of markets. What will it be next time? A major U.S. bank needing another government bailout? A terrible unemployment report? A devaluation in Latvia and/or other Eastern European countries that triggers a Scandinavian banking crisis which spreads? A blowup in the derivatives market?
You quoted Keynes. Read what Keynes has to say about investing versus speculating...the game of Old Maid, a contest in which you pick the prettiest girl not based on who you think is prettiest but on who you think others will think is prettiest.
Couple of points re: liquidity. First, it's unclear that much of this liquidity will find its way into equity markets. Much of the liquidity Leo keeps pointing to will be coming from sovereigns (CIC, Temasek, Norges and the like) and other plan sponsors. Seems to me that much of this will be deployed in ways that won't become immediately apparent in equity prices - e.g. distressed real-estate, distressed company debt, PE, maybe some commodities, infrastructure, distressed lending, etc. So while I think much of what Leo's saying makes sense in a vacuum, it's extremely difficult to know where the asset price inflation he's predicting will manifest itself.
@GS, your comment re: "What will it take next time? A major U.S. bank needing another government bailout?" brings up an extremely important point. The way we've moved our bad-risk capital from private sector balance sheets to the public sector's balance sheet means that the next time something bad happens it will be 1. systemic (as with LEH, AIG, Fannie & Freddie) sure, but more importantly 2. sovereign. The only legitimate case of "too big to fail" is the U.S. government itself. And it can FAIL. Think about that.
Now, the funny thing here is that nothing anyone has been criticizing Leo for has done a damned thing to dispel the notion that he could be right - we could very well see asset price inflation. But because of the aggregation of risk at the sovereign level here in the U.S., we're more likely to see hyper-inflation than "mere" inflation (monetary policy isn't a smart-bomb, much less a sniper-rifle) in the only asset that (really) matters...
And, of course, if we get that kind of inflation, the ensuing crash will be one for the ages.
Cheers,
TT
"And, of course, if we get that kind of inflation, the ensuing crash will be one for the ages."
TT,
I do not see pipeline inflation without wage inflation and with 10% unemployment (18% unofficial unemployment), that won't happen any time soon. Of course, you can have supply constrainsts on energy driving oil prices through the roof, but real inflation (1970s style) needs wage inflation. What worries me more longer term is a slow, painful, Chinese water torture style deflationary bust. That's why Bernanke et al. are trying desperately to reignite securitization and/or create asset inflation which they hope will translate into real economic inflation. Deflation keeps them up at night but they can live with inflation. In fact, they need it since it will cure some of their problems, including systemic pension deficits. It's a lesser of two evils.
@GS, the liquidity I am talking about is hard to measure but look at M&A activity, IPO markets, flows into hedge funds, sovereign wealth fund allocations to stocks and alternative investments, trading profits at investment banks, and last but not least, retail trading activity. There is abundant liquidity out there and it won't evaporate over night.
I've read more Keynes than 99% of the people reading ZH. I know all about the "beauty contest" and I don't tell people to speculate. Most peope should just be investing in a 60/40 stock/bond portfolio made up of ETFs. You can choose a high-beta ETF like Nasdaq or semiconductors (SMH or USD for more leverage) or choose a lower beta ETF.
My long-term money is in Chinese solar stocks and I have written about it plenty of times in my blog. It is a volatile sector but every time it dips, I buy more and forget about them. I do not advise this to people who are more conservative and cannot stomach volatility. And, there are no guarantees that solar will be the next big thing. I have other ideas which I will discuss in a future post.
Couple of points re: liquidity. First, it's unclear that much of this liquidity will find its way into equity markets. Much of the liquidity Leo keeps pointing to will be coming from sovereigns (CIC, Temasek, Norges and the like) and other plan sponsors. Seems to me that much of this will be deployed in ways that won't become immediately apparent in equity prices - e.g. distressed real-estate, distressed company debt, PE, maybe some commodities, infrastructure, distressed lending, etc. So while I think much of what Leo's saying makes sense in a vacuum, it's extremely difficult to know where the asset price inflation he's predicting will manifest itself.
@GS, your comment re: "What will it take next time? A major U.S. bank needing another government bailout?" brings up an extremely important point. The way we've moved our bad-risk capital from private sector balance sheets to the public sector's balance sheet means that the next time something bad happens it will be 1. systemic (as with LEH, AIG, Fannie & Freddie) sure, but more importantly 2. sovereign. The only legitimate case of "too big to fail" is the U.S. government itself. And it can FAIL. Think about that.
Now, the funny thing here is that nothing anyone has been criticizing Leo for has done a damned thing to dispel the notion that he could be right - we could very well see asset price inflation. But because of the aggregation of risk at the sovereign level here in the U.S., we're more likely to see hyper-inflation than "mere" inflation (monetary policy isn't a smart-bomb, much less a sniper-rifle) in the only asset that (really) matters...
And, of course, if we get that kind of inflation, the ensuing crash will be one for the ages.
Cheers,
TT
I am a trend follower, I use simple but effective trend following algos I wrote in 15 years of market experience. I made a killing on the downside in 2008..made good money on the upside since end of April ( a trend following has a time lag...) and I am scared to death by this market. I know you have to ride the waves, but this waves are now destroying deeper and deeper the real economy, and i feel like i'm riding a still controlled toboggan (i can steer it...) but i feel the damn thing is taking more and more speed.The liquidity tsunami is, in good part, already here.I subscribe whomever said that no one can callthe top of this..it may top today or keep goin for a month...but the height of the waves and the distance betweenthe waves have become scarier...I feel like a surfer trapped in a big storm.I think many of us are riding the waves, but we have all the fingers on the exit trigger...and that will hurt the prices.
@ Anon 17:40
Thanks for correcting me, I did not know Jimmy Carter got the ball rolling on financial deregulation. And I agree with you (and Soros), we do not need more regulation but better regulation. Thanks.
Also, what about better talent levels working in regulation? Probably highly improbable to retain quality talent when the private sector comes calling.
...so, the Crash of '08 was a dress rehearsal.
Actually Leo Jimmy Carter started deregulating and Reagan then continued. It was one one of the truely creative things about his administration that is forgotten because the other problems that overshadowed it at the end of his term. You seem at times fixated on deregulation as a problem. The question is not deregulation. The answer is the best level of regulation.
Great post on the surge in liquidity. You're probably in a position to see it better than most. Every time you mention it the response is total disbelief, which makes it more likely youre right.
With all due respect, those folks in the U.S. Treasury are not worthy of being dubbed "Keynesians". Keynes is leagues above any of them. As for leaving the market "cleanse itself", that doesn't work. Financial deregulation started with Reagan (started before when they repealed Glass-Steagal), was accelerated under Clinton and took a turn for the worst under Bush. That's why we got too big to fail.
The banksters will never be able to regulate themselves. Self-regulation is a farce in the financial services industry. Why would you ever allow the wolves to regulate themselves?
When was Glass-Steagal repealed?
1999...then-Senator Phil Gramm's name is most prominent on that bad boy...
With all due respect Leo, but why do we have to keep quoting the very assholes that got us into this mess, namely the 'Keynesians'.
Maybe if the 'Keynesians' in the Treasury and the Federal Reserve would stop intruding into the free markets, the free markets would start acting rationally.
Primarily what all markets did before 1913. Self-correct, clean out all the malinvestments and debts and start anew.
But, maybe we can drag out this Great Recession and enslave our children and grandchildren with ever larger public debt.
It's the Obama way.
I see a bubble developing in Brazil as a direct result of that stupid Olympic games scenerio. All of those idiots down there celebrating like any of this will mean anything to them are in for a very rude awakening.
SP500 daily chart is still bearish to neutral.
www.zerohedge.com/forum/market-outlook-0
Have you been reading my posts? I am increasingly seeing a V-shaped recovery, which for me means one that will surprise to the upside in 2010 (we can dispute by how much). The stock market, and all other asset markets, are beasts on their own. They are not only based on fundamentals. Huge liquidity fows are propelling them higher. We can't ignore the possibility of liquidity flows being a lot stronger than we think. Just looking at the cash coming in from China's CIC and the Norwegian Petroleum Fund make me shudder.
Again, I am not going to be right 100% of the time, but the balance of probability leads me to believe that something big is coming up. There are plenty of smart traders like Tim Knight (Slope of Hope) who think we are heading lower and they're actively shorting this market.
I would warn them to be very careful. That's all from me. Apology accepted.
Leo, If you are correct, wouldn't you see this "Hugh ligidity flows" and the prospect of inflation show up in Gov Bonds? The yield curve as reported by ZH is flattening - which implies to me that 30 year bonds are, at this moment, not factoring in the possible inflation that your article speaks to.
Comment?
DBL
Be careful. I stated that we will get asset price inflation, but this doesn't mean that we will get economic inflation. That is what they're trying to do, but it may not work. Huge liquidity flows augur well for asset price inflation, not necessariy economic inflation. You need wage inflation for this to happen, and I do not see that in the cards anytime soon.
Leo, interesting point.... so then - because of increasing unemployment or "hyper" unemployment this may lead to "deflation" in wages which is or could be offset by asset price inflation.
It seems to me in order to make this little game work without triggering economic inflation - GDP has to take it on the chin -- simple offseting transaction...
So quality of posts is directly proportional to the bearish content of the post?!? Give me a break. Those of you who only see death, doom and destruction are going to get your asses handed to you when this liquidity tsunami goes full throttle. The powers that be want inflation. They are hoping that asset inflation will translate into economic inflation. This is a risky gamble on their part but this is what's going on right now.
And please, I am no "green shoot". I called the credit crisis the unravelling of the alternative investment bubble that hurt pension funds. But I am not going to be bearish because some of you on ZH feel this is the ONLY intellectually honest response to have.
Give me a break! The markets are what they are. I see a major liquidity bubble developing. You can sit there and chastise me or offer me some proof to the contrary. I do not have the monopoly of wisdom on the markets, but I call it as I see it, not as I want to see it.
Markets are governed by greed and fear. That is the only thing that stays constant throughout time. As bad as 2008 was, people will forget and come back.
Important disclaimer: I get no revenue whatsoever from my blog. NONE. I blog because I have a passion for markets. PERIOD.
at work so anom. Nice report and thanks.
yeah you're right... there is a liquidity bubble. But what guys with your view forget is that liquidity conditions will not remain at these levels. Rightly or wrongly, and i am with you on the "call it as you see it" bit, there's a considerable amount of dissent growing for the fed's current stance.
Don't confuse output gaps and excess capacity (i.e deflation) for capacity destruction, for its destruction that has occurred. That is, supply has been taken out, not merely offline (a bankrupt company cannot merely turn on the lights in the factory it doesn't not have any more, with plant and equipment that it has sold, with workers it has fired, with working capital that it can't get etc when demand supposedly comes back). That to me signals higher prices, not lower prices. You are seeing that already.
The point is this rampant grab for assets with any yield > zero is happening and it may continue ... the forward price of assets shoots up when you set the discount rate to close to zero.... any swap trader will tell you that!!! However, at some point, that liquidity goes (it gets drained, or they sell back assets, etc) and when it goes the door won't be big enough. You seem to fail, like most analysts and strategists i have met with lately, to acknowledge that that is a possible scenario. It is, and its a very real one. I don't want to be holding stocks, commodities, credit, short usd positions etc when that happens.
there are already noises being made, yet the market has ignored them. Lets see if they get a bit louder. Remember, carry trades work ... until they don't!!
Leo, I enjoy your writing and insight. Bears are angry and unfortunately all bears must die before the markets turn downward.
You have been spot on about liquidity and non fundamental animal spirits driving stocks and risk assets higher.
Hard to see what you refuse to see.
Cheers,
Pigpen
Disclaimer noted.
"I see a major liquidity bubble developing."
Then what was that whole bit about 'growth' and how the government can harmlessly remove liquidity by raising rates, since market will view this is a positive sign of real growth coming back. That makes no logical sense.
If Market is going Up Because of liquidity, and NOT because of growth, then a liquidity-driven rally would come to a quick, sudden, and painful end when interest rates are increased. You completely gloss over the whole part about "growth" coming back into the markets, and yet that is what any recovering economy must have by your own admission. And yet you do a 180 and call this a rally based on liquidity. Pick one por favor! It serves only to confuse when put forth contradictory ideas and proclaim intellectual enlightenment.
I may have been out of line with my caustic commentary, and I would agree that ad hominems do not serve intellectual discourse. For that, I apologize.
Leo have always liked your stuff but I have to agree with Daedal as the double edge sword cuts both ways----any recovery will be illusional--the layman has been decimated and has absolutely NO confidence in this system---I would impress to all folks who form analysis of variance get out and DO assholes and elbows themselves too see the real truth about what has happened to this country.
For 37 years I have been in the construction industry and it is devastation--unfortunately most analyst just use their head for nothing but a fricken hat rack while always grouping residential/commercial construction as just a small part of the economy--WRONG- glass-carpet- roofing-coatings-timber-furniture-appliances-wiring-fixtures-equipment-tools-lightbulbs-hvac-steel-concrete-windows-sales people-realtors----it makes the auto industry look like fucking peanuts. All the companies that provided these products along with workers have been gutted like a fish and cast aside---labor built this country PERIOD.
As an aside the national debt will be 12 trillion on Nov 6--set your calendars.
sorry for the rant
Good rant, I liked it too
"Of course, growth could surprise to the upside, especially in a V-shaped recovery, and that will force central banks around the world to carefully coordinate the gradual withdrawal of all that stimulus.
In the meantime, stock markets will continue to grind higher. I have seen this all before. Stocks typically surge at the initial rate hikes as they see this as confirmation of global economic recovery. Will it go parabolic from here? Who knows?"
Is 'growth' some kind of entity in and of itself, that materializes randomly? Also, if you think banks can 'coordinate a careful withdrawal' (something they have proven to be incapable of doing in the past), you're deluding yourself.
Your comment reminds me of fat people who plans on going on a diet tomorrow, but first indulges in a buffet. It might make them feel better, but they're not doing themselves any good and they will have an even harder time starting a diet. Replace fat person with fed bernanke, and you you'll see the asinine nature of such a comment.
I'm guessing ZH has provided your website with some adsense-worthy traffic, b/c your posts on here have gone from interesting to downright pointless, quantity > quality, right? -- I feel like I just read financial spam.
Nice trick by Australia to incite the inflation scare to the next level..and push commodity prices higher...which in turn benefits commodity driven economies like...suprise!..Australia.
Australia sells commodities, maybe, they know something, we do not know yet.
glen stevens (australia) is the patsy in a game of competitive currency depreciation, however, unlike the patsy in a game of poker, this one, tragically, doesn't even realise they are in the game
I think they want a slurp of all that excess liquidity sloshing around...Why should just only the equity markets wet their beaks?...
Is the Next Bubble Unavoidable?
We've already partially reflated the last one and taken great strides to starting the next one(s).
10 massive and monumental steps backward for every half of a step forward...
Can you make a killing riding the waves, sure. Does that mean that gold is really valued at $1000 in an unfettered and free market? Fuck no.
Do what you will, just be prepared to suffer the consequences of complacently, knowingly, and willingly speculating on the rape of economic liberty.
These markets are all rigged and when the King collects his tax, someone is going to get caught with his or her pants down.
Funny, but I thought I heard Jim Rogers saying "...all the high freq. trading in gold right now...".
Ah sade, kin ah git n amen???
Leo, thank you. Guys, how many times do I have to tell you, DON'T FIGHT THE TAPE.
the fed will never let itself get audited.
"the market can stay irrational longer than you can remain solvent"
yeah, interesting quote. seems to have always applied only to bears. wonder if, wonder if, it might ever apply to, say, greedy mutual fund managers that know nothing about markets except to buy, buy, buy no matter fundamentals.
I don't necessarily buy the argument that congressional oversight will bring the Fed under pressure.There's nothing in 1207 that talks about intervening in policy decisions.
If it does bring about pressure it will be for making bad decisions and as you've indicated, the NY Fed is already under the thumb of Wall Street.
The Fed has only one ability, and that's to inflate. Until American citizens understand exactly what that does there will be little resistance.
Yes, the FED is only a one trick pony- they can easily inflate in a so-called stabilized economy. Trying to stabilize an economy in the midst of a deflationary spiral is one trick they will never master....
Agreed. Inflation is a child with many fathers. Deflation is an orphan......understood by few and wanted by none.
I am not managing any pension funds but I know they play an integral role in funding hedge funds and commodity funds. The point of this article was that we are cooked. The genie is out of the bubble. A tsunami of liquidity is heading our way and you'll see it in high beta stocks, emerging market stocks and bonds, commodities, commodity stocks, commodity currencies, high yield bonds, etc. This liquidity driven rally will last a lot longer than most skeptics think.
The irony is that while another asset bubble is unavoidable, it only makes things worse down the road. But the powers that be prefer risking it because they desperately want inflation, not deflation, to develop. Inflation is also what pension plans want because it helps them with assets and liabilities. Deflation is the death knell for pensions who are highly exposed to stocks and alternative assets like commercial real estate and private equity.